Unchanged personal consumption expenditure figures for July have opened the door for a string of rate cuts in the US over coming months.
Though cuts had widely been expected already, Close Brothers Asset Management’s Isabel Albarran said the data was “yet another” confirmation of rate reductions to come.
“With inflation cooling, the Fed’s attention is now firmly on the US labour market side of their dual mandate,” she said.
Bureau of Economic Analysis data showed the PCE index climbed by 2.5% over the year to last month and in line with growth seen in June.
The core reading, which excludes food and energy and is the Federal Reserve’s preferred measure of inflation, came in just below expectations at 2.6% and again reflected the same level seen in June.
“If we do see further [inflation] cooling, it’s highly likely that the Fed will deliver persistent rate cuts through 2025,” Albarran added.
How steep the first cut in September will be remains in question, with either a 25 or 50-basis point cut being weighed.
Markets were left pricing in the smaller reduction from September following Friday’s data, though the half-point cut was still being viewed as a possibility by some.
ABN AMRO Investment Solutions chief investment officer Christophe Boucher noted non-farm payroll data due next Friday would likely be decisive in the Fed’s decision.
“Until now, no data point urges the Fed to cut by [half a percentage point] nor does any report cast doubt on a quarter percentage point cut in September,” he said.
“Absent a major downside surprise, the Fed’s first cut would mark the beginning of a policy adjustment rather than a response to a downturn.”